Q2 2021 Star Group LP Earnings Call
Good day and welcome to the Star Group fiscal 2021 second quarter results, all participants will be in a listen only mode should you need assistance. Please signal a conference specialist by price and the Starkey followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one. Please note. This event is being recorded.
I would now like to turn the conference every day, Chris witty Investor Relations Moderator. Please go ahead Sir.
Thank you and good morning with me on the call today are Jeff <unk>, President and CEO and rich on Berry CFO I would now like to provide a brief safe Harbor statement. This conference call May include forward looking statements that represent the company's expectations and beliefs concerning future events that involve risks and uncertainties that may cause the company's actually perform.
To be materially different from the performance indicated or implied by such statements.
All statements other than statements on historical facts included in this conference call are for.
We're looking statements, although the company believes that the expectations reflected in such forward looking statements are reasonable.
Oh assurance that such expectations will prove to have been correct.
Factors that could cause actual results to differ materially from the company's expectations are disclosed in this conference call. The company's annual report on form 10-K for the fiscal year ended September 32020, and the company's other filings with the SEC.
All subsequent written and oral forward looking statements attributable to the company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements.
Otherwise required by law the company undertakes no obligation to publicly update or revise any forward looking statements whether as a result of new information future events or otherwise after the date of this conference call.
I'd now like to turn the call over to Jeff Berson, Jeff.
Thanks, Chris and good day, everyone. Thank you for joining us to discuss our quarterly results.
I'm pleased to report that while temperatures in the second quarter were nine 9% warmer than normal they were 16% colder than the same period last year, which drove improved operating performance across the business home heating oil and propane volumes rose as did adjusted EBITDA, which increased by $12 $9 million to 100.
$19 $7 million.
The increased activity levels, certainly tested the hybrid remote working platform that we've been operating in since last March but as expected our employees for more than up to the task and responded by demonstrating their ongoing commitment to providing the best customer experience possible.
As a result, we have continued to see steady improvement in our internal customer satisfaction indicators.
While the pandemic ran its course, we remain keenly focused on customer service employee safety and operating fundamentals.
Two areas previously impacted by the pandemic, namely equipment installations and service revenues have normalized and performed quite well during the quarter. Our motor fuels business also improved but volume still are still down from pre pandemic levels.
During the quarter Star purchased two small heating oil dealers and in April acquired another added approximately 6 million gallons in aggregate of additional volume to our operations.
With these acquisitions, we have now closed on five transactions since the beginning of the fiscal year quite as you saw on the 13 million gallons and product annually or.
Our acquisition program remains an important part of our growth plan.
These recent purchases are already proven to be great additions to the organization.
I remain confident that the overall strategy, we've been executing as star well positioned and prepared for whatever challenges and opportunities lie ahead.
With that I'll turn the call over to rich to provide additional comments on the quarter's results rich.
Thanks, Jeff and good afternoon, everyone for the quarter, our home heating oil and propane volume increased by 21 million gallons or 16% to 158 million gallons.
The additional volume provided from colder temperatures acquisitions and other factors more than offset net customer attrition temperatures for the fiscal 2021 second quarter or 16% colder last year, but still 9% warmer than normal our product gross profit increased by $30 million or 15% to 202.
$26 million largely due to a higher volume of home heating oil and propane sold.
Our delivery and branch expenses increased by $15 $4 million year over year of which $13 6 million was attributable to our weather hedging program.
In the second quarter of fiscal 2021, we recorded a slight charge of a half a million dollars compared to a benefit of $13 1 million recorded in the second quarter of fiscal 2020, reflecting warmer weather that year.
Other <unk>.
Delivery and branch expenses rose, just $1.8 million or 2%, which compares quite favorably for the 16% increase in home heating oil and propane volume sold.
We posted net income of $85 million or $27 million higher than the prior year period, reflecting a noncash favorable change in the fair value of derivative instruments of $20 million and a $13 million increase in adjusted EBITDA, partially offset by higher income tax expense of approximately <unk>.
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Adjusted EBITDA rose by $13 million 12 per cent to approximately $120 million the impact of higher home heating oil and propane volume on 16% more than offset the $13 6 million decline in the weather hedge benefit and an increase in total operating expenses of just <unk>.
$3 million or 3%.
Turning to the results for the first half of fiscal 2021, our home heating oil and propane volume increased by 4 million gallons or one five per cent 247 million gallons as the additional volume provided from acquisitions slightly colder temperatures and other factors more than offset net customer attrition.
Temperatures for the first half on physical 2021, or 3% colder than last year, but again still 11% warmer than normal.
Our product gross profit increased by $13 million or 4% for $354 million as an increase in home heating oil and propane volume and higher home heating oil and propane per gallon margins more than offset a decline in gross profit from other petroleum products the.
Delivery and branch expenses were virtually unchanged year to date as an unfavorable change in the weather hedge benefit of $6 $7 million was offset by a reduction in operating cost of $6 $7 million, we posted net income of $123 million for the first half of fiscal 2021.
Our $37 million higher than the prior year period again due to a noncash favorable change in the fair market of derivative instruments of $31 million and an increase in adjusted EBITDA of $13 million, partially offset by an increase in income tax expense of 10, and a half million dollars.
Adjusted EBITDA increased by $13 million or 9% to $165 million the impact of slightly higher home heating oil and propane volume higher home heating oil and propane margins and total lower operating expenses of $6 7 million more than offset a $6 $7 million decline.
And the company's weather hedge benefit and now I would like to turn the call back over to Jeff.
Yes.
Thanks Rich at this time, we're pleased to address any questions. You may have co. Please open the phone lines for questions.
Everyone now begin the question and answer session.
I'll ask a question you May press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two and at this time, we will pause momentarily to assemble the roster.
And our first question today will come from Michael proudly with 10-K capital. Please go ahead.
Hey, guys good morning, and congratulations on another great quarter.
So I have three questions. This morning first one is for rich.
Which you guys had some personnel cost savings in the deliver expenses, including both the reduction on bad debt and also insurance expense and I just wanted to get a little bit more color on those given that it seems just about everyone else. These days is talking about increases and expenses.
Yes.
And then secondly, Jeff this is probably for you.
Just wanted to touch again on the churn issue you know as we've talked about before just very tiny changes in churn can have dramatic valuation implications.
And it's starting to look as though the trends are moving in the right direction. There. So just wanted to get your thoughts on that in terms of our progress and sustainability and then final question.
For anyone that wants to take it as Sun capital allocation, specifically the share repurchase and I just wanted to make the observation that I'm on.
Honestly with the share base contracting.
The free cash flow per share is going to increase some proportion.
And I think that means hopefully both the stock price is going to continue to go up.
Which also implies that I think there needs to be a willingness on the part of the company to modify the baidu.
But that formula.
At least on a you know.
Reasonable basis, rather than going out and doing a massive buyback tomorrow for example, but on a as always measured basis to.
Continue to increase the price at which you're willing to repurchase stock. So so I wanted to get input on all those three issues. Thanks.
Sure I can I can take a couple of those with regard to no bad debt expense.
To a certain extent it is a function of where heating oil prices are.
Our bad debt historically have run you know three tenths of one percentage of sales or 35 basis points as a percentage of sales on a on an annual basis and we'll have to see how that all plays out at the end of them.
And the September what product costs are down generally.
Speaking so you know we will be able we did pick up.
We had some lower bad debt expense this year versus last year, having said that our receivables are in you know fairly fairly decent shape and they have continued to improve we will have to see how how the economy plays out on where this will go you know next year for going forward, because heating oil prices or the cost of what.
We pay it off so significantly versus this time last year by 75 cents to one dollar per gallon, so well have to watch that but we appreciate them.
You're seeing that we are doing better you know insurance expenses, it's a function of.
For our claims and we've done a great job on managing the claims as well as trying to prevent accidents are whether it's a workers' comp automobile or there's some kind of general liability issue that we've had and our guys are doing a great job at managing these claims as well as making sure we don't have any incidents and knock.
On what we can keep going forward with the.
With doing better on our insurance claims however.
If you look at sort of the premiums to ensure companies of our size, who have a fleet of over 2000 vehicles.
The.
He had the general liability, but the our excess insurance market is increasing and we're seeing 10% to 15% maybe even more on a percentage.
Percentage increases going forward. So you know, it's great bad debts down in insurance expenses down, but the prices of heating oil going up and we do expect some premium increases for the <unk> hundred million dollars of excess liability coverage that we have and I'll take the fourth part of that question and then I'll turn it.
It back over to Jeff to discuss did share.
We are in a we're just entering into a period now where we can evaluate the price that we are going to pay for our shares and that's something that we're looking at and well you will probably come up with something.
On a couple of weeks or will make a decision to change the price that we're going to be buying in these units.
Yeah, right, Yeah, I'll just jump in quickly and say you know again terrific job on the execution side and it's great to see that being reflected both on the improvement in bad debt and also some of the cost on them and.
I think again on the share repurchase certainly the fact that it's getting harder and harder.
Alley.
Allocate capital net tuition definitely does I think index.
Indicate.
An important and timely need to adjust debt. So anyway. Thanks for your feedback.
Okay, you're welcome.
Yeah, and Michael with regard to customer churn and I think I've mentioned this many times.
On these calls over the last two years, we knew as a new management team when we got into place that we needed to to put a tremendous amount of focus on.
Improving net customer attrition, which in.
In my mind, we're at unacceptable levels in 2019, we've made very strong progress in that regard and in not only reducing attrition as you mentioned, reducing customer churn and improving.
Overall customer retention and a lot of that has come you know we've included you know a higher level of customer analytics into that.
Exercise in terms of better understanding our customers and what they expect from us and what makes them stickier.
The whole cost piece of this.
And you know removing unnecessary.
Cost from the business, but then reinvesting that and you've heard me say this many times reinvesting that into areas that really do improve the customer experience and our whole value equation as as a business and you know we've got a lot of work to do we're not done, but I I I am very pleased.
With you know how all of that how we've executed all of that to date.
Yeah, it's great to hear that and forgive me for being a broken record debt.
You know until you guys figure out how to control the weather I think if there was one metric.
So this is one being a broken record as if there was one metric you could focus on to improve the economic value of the business its customer churn and so on.
I'm, probably going to continue with you for parents to us Christians about debt on every single earnings call, but again, it's great to see the progress and keep up the good work.
Thank you.
And once again, if you'd like to ask a question. Please press Star then one.
Again that is star then one to ask a question.
Seeing no further questions I'd like to turn the conference back over to Jeff Who's Man for any close.
Remarks.
Well. Thank you for taking the time to join US today and your ongoing interest in Star Group, We look forward to sharing our 2021 fiscal third quarter results in August thanks, everybody.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
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